Potential Rate Savings: Michigan Natural Gas Easement Program

Travis Nguyen

During 2001, Michigan utilities DTE Energy and Michcon merged, creating overlapping service territories in and around Detroit. In order to ensure competition the Federal Trade Commission mandated that a third-party supplier have access to transportation and storage capacity. Exelon Energy was the successful bidder for this distribution capacity, receiving a 20 year right for what is commonly known as the Easement Program. Since the merger of Constellation New Energy and Exelon, the management of this third party supply option has been administered by Constellation. Under the Easement program, Constellation is able to offer a 15 percent distribution discount and eliminate several utility surcharges for accounts within a limited and specific service territory. In addition, Constellation performs customer invoicing on behalf of DTE Energy/MichCon.

When contracting with Constellation a customer will have the option for either a fixed or a monthly variable contract rate. Under a fixed price product the contracted rate will remain constant for the term of the contract. The variable contract will allow the commodity portion of the cost of gas to change month to month at a rate set by either the settlement of the Nymex or the available local index point, MichCon citygate, pursuant to the terms of the contract. Variable contracts require a monthly nominated contracted quantity of natural gas, and any usage above (or below) this amount will be purchased (or sold) at the current market rate. Fixed price contracts allow for either a monthly nomination structure or for any amount of natural gas consumed to be at the fixed contract rate. This is commonly referred to as a 100 percent swing bandwidth and normally comes with a small premium built into the contracted rate.

The easement program is available for DTE MichCon accounts in Wayne, Washtenaw, Oakland, Macomb, and Monroe counties. Here is an example of a potential utility rate savings. As a Schedule GS-1, Non-Residential General Service customer with a monthly usage of 3,500 CCFs and based on current charges, your savings may look like this:

The potential savings can be beneficial for many clients. However, the lengthier legal review processes required to take advantage of this program can negatively impact potential savings.

Finally, while the Easement program is generally the best option for customers in this limited service area, it should be noted that it is not the only option for customers interested in third party natural gas supply. While other suppliers aren’t able to offer contracts on the Easement program, many third party options will allow for cost avoidance when compared to the utility’s cost of gas. It is also important to consider an entire portfolio when choosing the best options in the Michigan market.